To some, it seems counterintuitive that one who has been wronged by another’s breach of contract, negligence, or worse gets saddled with legal responsibilities to the bad guy. But that’s exactly what happens. For public policy reasons, the law doesn’t want to hand out windfalls to anyone, even those who have a legitimate gripe. Rather, an aggrieved person’s right to recover comes with qualifiers courts enforce to minimize the hit to the wrongdoer. Those qualifiers include the duty to mitigate damages.
Usually, the issue is pretty straightforward. If a carrier loses a shipper’s cargo is lost, and the shipper doesn’t fulfill an order through readily available substitute product sitting in its warehouse, then it typically can’t recover lost profit margins from the carrier. But in the complex world of international ocean shipping, sometimes it’s not so clear whether a plaintiff has done its duty to minimize its loss. The U.S. District Court for the Southern District of New York and the Second Circuit Court of Appeals recently took a look at just how close to the fire an aggrieved plaintiff’s feet should be held regarding mitigation of damages.
Consignee Akata Food Trading, Inc. imported 29 reefer containers of garlic from China, and booked the shipment with NVOCC Blue Water Shipping U.S., Inc. Blue Water, in turn, booked actual transportation with steamship line APL. When the cargo arrived in California, Customs assessed huge anti-dumping duties, and Akata refused to take possession of the garlic. This prompted Customs to place the cargo in “General Order,” or “G.O,” meaning that APL would have to keep the cargo in its own refrigeration units at a warehouse pending Customs okaying its release. Customs regs provide that perishable G.O. cargo, such as garlic, can be put up for “quick sale” if certain hoops are jumped by those claiming an interest. Meanwhile, demurrage charges APL would typically charge its shippers for storage accrue. For this kind of volume, demurrage is substantial. APL’s bill of lading names NVOCCs such as Blue Water as part of the conglomerate of entities responsible as the “Merchant” for payment of costs associated with the shipment, including demurrage.
Release of food products detained by Customs requires a survey confirming that the cargo hasn’t spoiled, followed by U.S. Food and Drug Administration approval. APL got on this, and thought it was complying with the Customs regs regarding a quick sale. Apparently, however, confusion about those regs, specifically about the timing of when action could be taken, delayed the process. The government agencies also dragged their feet in authorizing a sale. Ultimately, the garlic had to be destroyed, resulting in additional costs APL wanted to recover.
Blue Water couldn’t have done much here, other than pay APL’s bill. Even though it was responsible to APL for costs, only Akata could facilitate disposition of the garlic with Customs and FDA. When APL demanded that Blue Water pay up per the bill of lading’s terms, it refused. Litigation ensued.
Had APL failed to mitigate its damages? Blue Water thought so. As it turned out, the trial court agreed. APL’s demurrage claim was for $474,072.18. The court found that APL had delayed seeking the quick sale, and had “failed to pressure” the warehouse into expediting it. It further found that had APL acted more diligently, then a sale would’ve been concluded months earlier, and most of the claimed demurrage charges, and the sale itself, would’ve been avoided. When the trial court awarded only $184,910.00 of the claim, APL took the matter up the hill to the Second Circuit.
The Court of Appeals ruled that the trial judge had imposed too harsh a standard on APL. A trial court should be more “forgiving” of a plaintiff that has been “thrust into the shoes of the breaching party as it scrambles to mitigate the impact of the breach,” the Second Circuit ruled. Further, the trial court must “determine whether the mitigation efforts actually chosen in those unaccustomed shoes were reasonable, not whether hindsight suggests that an objectively better choice was available.” The Second Circuit reversed and sent the damages calculation back to the Southern District of New York.
APL’s obligations need only be reasonable under the circumstances, and shouldn’t exceed what the breaching party, Blue Water, would be expected to do. And that wasn’t much, given that it wasn’t the cargo’s actual owner. APL’s confusion about Customs and FDA procedure might have caused some delay, but the agencies and warehouse itself were equally to blame for that. At the end of the day, APL was awarded its full demurrage claim, plus related costs.
The reasonableness standard imposed on plaintiffs in mitigating their damages is contextual and not to be enforced to the extent sight is lost of the real wrongdoing. In other words, those who have been harmed by others should be mindful of the requirement that they must reduce their damages, but remember that the standard imposed on them is limited.
Ref: APL Co. PTE, Ltd. v. Blue Water Shipping U.S., Inc., 779 F.Supp.2d 358, 2011 AMC 1396 (SDNY 2011)
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